Was Free-To-Play Always The Plan For 'Elder Scrolls Online?'

It came as little surprise to observers of the video game industry and the MMO market in particular that the ambitious Elder Scrolls Online eventually ditched its subscription fee.

The game is now effectively free-to-play, though that's something of a misnomer: Consumers still need to purchase a game license, but starting March 17th they will no longer have to pay a subscription for the game. This is similar to the Guild Wars 2 model, something I argued ESO should borrow back when news of its revenue model first surfaced.

Under this model, consumers buy the game once and then play for free with options to purchase items from a cash shop, expansions, and so forth.

Now that the game has moved to this model, the generally accepted wisdom is that it was inevitable. In today's market, sustaining a subscription fee is nearly impossible. World of Warcraft and EVE Online manage it, but few newcomers have had such success. Final Fantasy XIV: A Realm Reborn has so far been pretty successful in maintaining a subscriber base; others, like Wildstar have struggled and may end up going free-to-play or buy-to-play down the road.

The common refrain here is that of course games like ESO couldn't make it under this subscription model. What was Zenimax thinking?

Elder Scrolls Online isn't the first major MMO to move from subscription to free-to-play. Star Wars: The Old Republic, EA and BioWare's massive Star Wars MMO, went free-to-play in 2012 after just about a year on the market---a very similar time-table to ESO.

"I’m beginning to think that repeated initial use of subscription with later conversion to an F2P option is not a failure of publishers to come to grips with reality," writes Knowles. "I’m beginning to think it’s a conscious decision, from the start, to engage in a practice known as intertemporal price discrimination."

Intertemporal price discrimination, or IPD for short, "is when you sell the same---or nearly the same---product to different people in different time periods" according to Knowles. He illustrates the practice using the film industry. A film is released to the "first theater, then second-run theater, then pay-per-view, then HBO/Showtime, then BluRay, then Netflix, then cable, and so on. On a per-consumer basis, each of these viewing options is slightly less valuable to movie studios than the one following it."

Tech companies often operate along similar lines: Early adopters of tech gadgets like the iPhone, iPad, graphics cards, and even video game consoles---think of the PS3's opening price-tag or the Xbox One's yearlong price drop---will pay a great deal more at launch than johnny-come-latelies a year or even a few months down the line.

(This is in contrast to regular price discrimination which is when a product is released simultaneously at different price points, i.e. a special edition of a video game vs the standard edition.)

The thinking here is that companies know they can make more off early adopters and a specific subset of consumers, so they launch with a higher price-tag and gradually adjust that price over time until the new game/model/etc. is released.

In the case of a game like ESO, a video game publisher can make a lot more money off of those super lucrative $15/month subscription fees (plus game sales) than off of a cash shop.

Moby Dick

"Anyone who strongly values the game, and who simply can’t wait for the inevitable switch to F2P, will pay for the subscription," Knowles argues. "The game publisher gets what it can from these high value players. Eventually, the supply of such customers is exhausted. Their value starts to fall into equilibrium with the potential value of consumers who are still waiting to get in for free. When that happens, the company begins to offer a free-to-play option."

Game makers are like Captain Ahab when it comes to free-to-play: They're always in pursuit of the "whales," those players who outspend others by orders of magnitude---like our own Paul Tassi. One important consideration in any F2P game is ensuring that enough players, even non-paying players, are around for the whales to play with in order to ensure they spend money. In some ways, these early subscribers to ESO are simply a fish of another color---the kind that will spend well over $200 in the first year of play, and possibly more if they also purchased a collector's edition or any items out of the cash shop. That's a lot of early revenue to propel the game into its second chapter.

Now, when the game goes free, it has the potential to be flooded with new free players, possibly enriching the experience for those who were there from the beginning, and quite likely drawing back players who have left. People accustomed to spending $15/month on the game will suddenly have more cash burning holes in their pockets, ready for the cash shop.

"Given the above," Knowles concludes, "Zenimax Online’s announcement of the F2P option for Elder Scrolls Online strikes me less and less as an admission of defeat, and more and more as a good business decision made well in advance."

It's a sound theory, from a business perspective. Net the early adopter whales, make improvements to the game from this legion of guinea pigs, and then open the floodgates. It's not at all dissimilar to what happened with SW:TOR. It also makes sense to implement free-to-play in anticipation of the console market, which is even less amenable to subscriptions.

The only question I'm left with is whether or not this is actually the best value proposition for publishers to begin with.

After all, EA reported doubling their revenue for SW:TOR after it adopted a F2P model. They also managed to stabilize their subscription numbers. If that's the case, would the game have been better off going free-to-play from the outset? Or is there something about limited access to a product that makes it more appealing when it does, eventually, become available? Is it the Eric Cartman theory of business at play?

In related news, I was only off by just over two weeks in my prediction of the date ESO would drop its subscription model. Not bad, if I do say so myself, though Forbes' Alex Knapp was a day closer in his guess. Read all of our predictions here. Oh, and I hazarded a guess that ESO would come to consoles before it was released and before we even knew what a PS4 or an Xbox One was yet.